Firehose #192: 🍽 Campo a la mesa. 🍽

Lightspeed invests in Frubana, doubling down on LATAM. Plus: pumping up PTON, anime going mainstream, the NFT bust, and more.

One Big Thought

Latin America (LATAM) is the fastest growing e-commerce market in the world. It has 640M residents with $5.8T of GDP (6–7% growth). GDP per capita is $9K, or roughly the same as China. The region has near ubiquitous mobile and internet penetration, yet it has a fraction of the tech investment dollars of comparable developing regions like Southeast Asia. One sign that capital is flowing into the region now is the meteoric rise of MercadoLibre (MELI)*, which has increased its stock price by 4x in the last 3 years, buoyed by LATAM’s digital transformation during COVID.

Private capital flows have accelerated too. 2021 is tracking to an all-time high of ~$15B of venture capital in LATAM companies, a 3x increase since 2018. The secret is getting out that LATAM will be the next global region for breakout tech startup growth.

While the macro factors are attractive, one of the more practical aspects that makes me bullish on LATAM is a new generation of experienced talent emerging to start their own companies. MercadoLibre (founded in 1999) is the poster child of the 1st generation. Companies like Nubank (founded in 2013) and Rappi (founded in 2015) exemplify the 2nd. This 3rd generation cut their teeth at these foundational startups and got an invaluable, real-world education in company building. Their market timing is even better than that of their predecessors.

In late 2019, I met a compelling founder from this 3rd LATAM generation. Fabián Gómez was one of Rappi’s earliest employees and top performers. He had recently founded Frubana — a wholesale marketplace for local restaurants. In our initial meeting, I was blown away by Fabián’s incredible passion, market knowledge, hustle, and attention to detail. I had some good context for his business since I led Lightspeed’s initial investment in Faire in 2018. My experience with Faire, as well as our portfolio companies Udaan (India) and Ula (Indonesia), informed my belief that B2B/wholesale would be the next wave of online marketplaces.

While we weren’t prepared to invest in Frubana at that time, my partner Mercedes Bent and I set out on a mission to map the LATAM ecosystem and build relationships with entrepreneurs and investors in the region. We met hundreds of companies in the following 18 months. In early 2021, we finally decided the timing was right to make our first few investments.

We happily announced our first LATAM investment in Stori a few months ago. This week, we announced that our second is Frubana!

Frubana* is a wholesale marketplace serving the restaurant industry in LATAM. 1.5M restaurants in LATAM spend over $100B procuring goods each year. The market is transacted today through a complex supply chain of middlemen in local stalls in town plazas. The below is a typical produce market in Mexico City, for example. Farmers and restaurant owners meet at these markets several times a week to exchange goods and money. To reach these markets, product passes through multiple layers of middlemen in a highly inefficient process with little transparency or consistency.

Frubana has vertically integrated the supply chain for produce, giving farmers more value for their products, reducing waste, and delivering transparent pricing to restaurants. Frubana purchases directly from farmers, aggregates produce in regional distribution centers, and fulfills deliveries using intelligent routing. While building a produce supply chain is no easy task, doing so has enabled Frubana to create a highly recurring purchase behavior with its customers, leading to best-in-class retention for a wholesale marketplace.

Frubana also sells proteins and packaged goods through a 3rd party marketplace where sellers compete for Frubana’s customers. While most customers start buying produce from Frubana, over time they grow their “share of wallet” by adding the other categories to their deliveries. Frubana has some of the best retention we’ve seen in the wholesale category. In cities like Bogotá, Mexico City, and São Paulo, tens of thousands of restaurants essentially run on Frubana.

Compared to in the US, the restaurant industry in LATAM is significantly more fragmented. 86% of restaurants are independently owned, similar to developing nations like China (81%) and India (81%). The US restaurant industry is only 47% independent, and as such large food distributors (Sysco, US Foods, Performance Food Group — in aggregate, $59B market cap) have grown to serve corporate restaurant chains. Because of their local economies of scale in distribution and ability to cross-sell, these distributors are incredibly hard to disintermediate in the US. However, in LATAM, no such oligopoly exists. By building a supply chain for produce first, Frubana has a unique opportunity to aggregate LATAM’s restaurant market.

COVID hit the restaurant industry hard in LATAM. Approximately 70% of establishments shut down or slowed operations. Despite these headwinds, Frubana grew active customers 6x and sales 3x in the last year — establishing its position as the “everything store” for the LATAM restaurant industry. This resilience in the face of adversity demonstrated how capable Fabián and his team truly are. With little digital penetration in local restaurants, we think Frubana will be well positioned to bring these businesses online, help facilitate a transition to electronic payments, provide working capital, and in general drive efficiencies throughout the entire food ecosystem.

Frubana’s mission is to make food cheaper and more accessible in LATAM. It reduces food waste thanks to its innovative supply chain. Frubana only looses 1–2% of tonnage to waste compared with over 50% in the existing supply chain. That means more money in the pockets of farmers, more efficiencies for the restaurant owner, and cheaper end-product for consumers. Any great platform gives away more value than it captures, and that’s certainly the case for Frubana.

Lightspeed is delighted to partner with Fabián and the Frubana team to build a category defining company in LATAM. We’re excited to co-invest with friends Carlo Dapuzzo at Monashees, Hans Tung at GGV, Tiger, Softbank, and more.

If you’re interested in hearing more of my thoughts on Frubana’s market opportunity, and global wholesale marketplaces in general, check out this interview I did last week at a virtual customer event for Frubana. It’s even translated into Spanish!

And, if you’re interested in working for Frubana and reside in Bogotá, Mexico City, Buenos Aires, or São Paulo, check out their careers page.

Note: I originally published this post on the Lightspeed Medium here.

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Links I Enjoy

#commerce

Pumping up Peloton.

Peloton was about as counterintuitive an early stage consumer investment as you can find. CEO and founder John Foley famously struggled to raise the first $400K angel round. A $2,000 exercise bike, with negative margins, in an industry built on breakage? Conventional wisdom said, “No way.”

But, Foley led Peloton through its IPO and built the most addictive exercise service ever to exist, with 90%+ annual retention of members. Its margins are world class on both hardware and subscription, and its market position continues to grow.

This week I read an insightful bull case on the company. It hits on some of the same factors that make Netflix such a successful business, namely that Foley regards the subscription price of $39/month as “sacrosanct” and that over time he wants to “make it irresponsible to not have a Peloton membership.”

The management has stated that the goal is to have 4 or 5 fitness platforms that are instructor-led, music, and socially driven. What initially started as a bike to democratize access to boutique fitness classes will transform into a multiplatform fitness ecosystem that will radically improve our approach towards fitness.

In addition, the post touches on another element of Peloton’s strategy, which the author calls “premiumization”.

Our day is composed of hundreds of experiences and if any given company is able to improve a relevant aspect of our life for a reasonable (but higher than other alternatives) price, we will eventually make the transition towards its products or services.

The author is making the argument that gyms used to be gritty and inconvenient (Gold’s Gym, etc). Then they got fancier, but still inconvenient (Crunch, Planet Fitness). Then they got social and fancy, and slightly less inconvenient (SoulCycle, CrossFit). Peloton is the inevitable end-state: a premium, social gym experience with all the convenience of working out at home.

This evolution of the fitness industry from gritty gyms to $2,000 connected home bikes reminded me of the premiumization coffee industry. My mother drank Folgers’ brand, freeze dried coffee every morning growing up (and so did her mother). Then Starbucks came along and turned coffee into an “experience” — charging multiples per cup of what you could make at home. Keurig made similar quality coffee even more convenient at home. Then came along even higher end home coffee machines like those made by Nespresso. Finally, we saw the rise of the “third wave” coffee companies like Blue Bottle that make a truly artisan product available commercially through all points of purchase. The price of coffee for a consumer can literally span an order of magnitude today. It turned out the market for coffee was much bigger than anyone expected as it became de-commoditized, or “premiumized.”

#media

Anime is going mainstream.

One of the oddest trends in media during COVID has been the western rise of anime in popular culture. According to The Information, Netflix has seen viewership of anime double over the last year in the US. In Chile and Peru, anime shows are consistently in the top 10. Netflix apparently pays 50% more to anime studios compared to its usual deals, due to the demanding technical nature of developing these shows. The best IPs are also proven out by the comics (or “manga”), which means they are highly competitive and generate bidding wars. Netflix acquired the first season of Demon Slayer, for example, on a non-exclusive basis — highly unusual.

The subsequent Demon Slayer movie, released in late 2020, has now grossed over $500M globally, making it the highest grossing film of 2020! For those of you playing along at home, that worldwide gross is more than Christopher Nolan’s Tenet brought in at the box office. Furthermore, the movie starts chronologically exactly where Season 1 of the anime stopped, with no recap whatsoever. It makes no sense at all if you aren’t familiar with the series. And it’s in Japanese with subtitles! I gotta believe that everyone who saw that movie was already a severe Demon Slayer fan.

I fully expect we’re going to see more anime movies opening in wide release post-COVID and, given the prior anime TV series and manga popularity, we’ll see them beat out major live action releases in US theaters.

#tech

Boom and bust (and boom again?). →

NFTs are one of the most exciting trends in tech this year, but it’s hard not to notice the rapid decline in enthusiasm in nearly every NFT category in the last month. I point to the data in this post not as a nay-sayer, but as a conscientious observer who is interested in the underlying long-term trend.

One nevertheless bullish observation is that, compared to June 2020, active NFT wallets are still up YoY in most categories. In addition, the biggest category of decline is collectibles, which I’ve personally viewed as the most speculative category. The time it takes to establish an item traditionally as collectible is at least a generation (nostalgia needs time to set in), so a whole raft of creators claiming they’re creating new collectibles in 2021 feels premature to me. On the other hand, NFTs that are attached to experiences like games, meta-verses, or sports, have retained much better than collectibles.

My prediction is that we’re about to enter the “trough of sorrow” for NFTs, but that more productive use cases will rise from the ashes.

#science

Twisted black holes.

Black holes are the mystery machines of physics. They sit at the edge of what we know and what we want to know to understand the cosmos. The scale and energy of these systems simply defies all intuition. This article is about a particular, supermassive black hole called M87 that its at the center of the Milky Way galaxy:

“The black hole in M87 is about the size of our solar system,” Issaoun said, yet it produces a 5,000-light-year-long current of white-hot plasma. That’s like the Statue of Liberty popping out of a marble. Some 3 trillion trillion trillion joules of energy flow up the jet each second — 500 trillion times more energy than the entire human population burns in a decade. “How could something so tiny be so powerful?”

In particular, the article discusses recent explanations of black hole jets and goes back to review old theories. The above video does a good job reviewing the basic concepts.

#culture

Here’s Johnny!

Like many “old millennials,” I grew up watching MTV. Jackass debuted in 2000 and ran for 3 seasons on the air. It redefined the age old art of the daredevil in an irreverent, vulgar modern context. The first few seasons of the show were addictive, and Knoxville, along with his peers like Bam Margera and Steve-O, became iconic symbols of the Gen X, IDGAF, skater punk generation.

This GQ profile of Johnny Knoxville is nostalgic for me, and I bet it will be for some of you. Crazy to see your childhood heroes get a full head of grey hair.


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Disclaimer: * indicates a Lightspeed portfolio company, or other company in which I have economic interest. I also have economic interest in AAPL, ABNB, ADBE, ADSK, AMT, AMZN, BABA, BRK, BLK, CCI, COUP, CRM, CRWD, GOOG/GOOGL, FB, HD, LMT, MA, MCD, MELI, MSFT, NFLX, NSRGY, NEE, NET, NFLX, NOW, NVDA, PINS, PYPL, SE, SHOP, SNAP, SPOT, SQ, TMO, TWLO, VEEV, and V.

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